The cash to cash conversion cycle identifies cash flows from the time costs are incurred ( such as raw material inventory) to when it is paid ( account receivable).

Cash to cash conversion cycle= IDS + ARDS- APDS

where;

IDS= Average total inventory/ Cost of goods sold per day

ARDS= Accounts receivable value/ Revenue per day

APDS= Accounts payable value/ Revenue per day

Revenue per day= Total revenue/ Operating days per year

Problem: Evaluating cash to cash conversion cycle

a. Evaluate the cash to cash conversion cycle for a company that has:

- annual sales of $3.5 million

- annual cost of goods sold of $2.8 million

- 250 operating days a year

- Total average on hand inventory of $460,000

- $625,000 in accounts receivable

-$900,100 in accounts payable

Solution: Evaluating cash to cash conversion cycle:

- CGS/D=

- R/D=

- IDS=

-ARDS=

-APDS=

B. What can you conclude about the company's operating practices?